The reduction of gold import duty from 15% to 6% has sparked a significant rise in gold jewellery sales. Consumers are addressing pent-up demand and making early purchases for weddings. This boost has been particularly evident in the second quarter of the current financial year, with retail prices falling steadily and drawing in more buyers.
Gold Demand Rises
Retailers like Kalyan Jewellers India Ltd. and Senco Gold Ltd. have reported notable improvements in sales. Senco, for instance, saw a 25-30% increase in sales during the first half of the second quarter, a sharp rise from the 10% growth in the first quarter, according to JPMorgan. However, the report warns that this increase might be partly due to consumers buying early, which could slow growth later in the fiscal year.
Diamond Sales Struggle
In contrast, the diamond segment faces challenges. As consumers shift their focus to gold jewellery, diamond sales have slowed. Titan Co. Ltd. reported a 6% increase in studded diamond sales year-on-year, compared to an 8% rise in overall jewellery sales. Additionally, lab-grown diamonds, seen as a cheaper alternative, are impacting the natural diamond market. Titan and Kalyan Jewellers are cautious about entering the lab-grown diamond market, while Senco has launched a new retail format, “Sennes,” for lab-grown diamonds. The long-term impact of lab-grown diamonds on the natural market remains uncertain.
Expansion Amidst Competition
The report also covers the expansion plans of major jewellery brands. Kalyan Jewellers aims to open 80 new stores in India by March 2025, mostly through franchises. Titan and Senco plan to open 40-50 and 15-20 new stores, respectively. This expansion is happening in a competitive market where both regional and national brands are scaling up and adopting professional setups to maintain market share. Despite the lower customs duty aiding industry formalization, increased marketing and promotional costs will be essential to stay competitive.
Future Outlook
JPMorgan predicts that operating margins in the jewellery sector will remain stable. The impact of the duty cut on inventory will be gradual, minimizing its effect on profitability. However, the sector may face challenges in the medium term due to lower studded diamond sales, a focus on gold, and rising promotional costs. Additionally, major retailers are exploring international markets. Titan plans to open nine new Tanishq stores abroad by March 2025, Kalyan Jewellers aims to open its first US store before Diwali, and Senco is already present in Dubai.
